Question

assume libertyville has a natural rate of unemployment of 6% and has averaged a gdp growth rate of 3% per year over the last 30 years.

year | gdp (% change) | unemployment (% of the labor force)
2014 | 0% | 7%
2015 | -1% | 8%
2016 | -2% | 10%
2017 | 2% | 6%
2018 | 4% | 3%

based on the data given in this table, during which years was libertyville most likely to be in the expansion phase of the business cycle?

choose 1 answer:

a) 2015 and 2016
b) 2014 and 2015
c) only 2018
d) 2017 and 2018
e) only 2017

Explanation:

To determine the expansion phase, we look for years with positive GDP growth and unemployment below the natural rate (6%) or decreasing with positive growth.

• 2014: GDP 0% (not expanding), Unemployment 7% (above natural rate).
• 2015: GDP -1% (contraction), Unemployment 8% (rising).
• 2016: GDP -2% (contraction), Unemployment 10% (rising).
• 2017: GDP 2% (positive), Unemployment 6% (natural rate).
• 2018: GDP 4% (positive), Unemployment 3% (below natural rate, decreasing).

2017 and 2018 have positive GDP growth, with unemployment at or below natural rate (and decreasing in 2018), indicating expansion.

Answer:

D. 2017 and 2018